Brian Gaynor: Fraudsters take big interest in NZ

"It would be nice to promo Investors International down under and make some real cash. Let me know. I'm convinced between you and (me) we could team up and make the trip very worthwhile."

Paul Palmer, email, September 24, 1999

New Zealand has become a target for international fraudsters and their investment scams. These include false invoicing, Nigerian scams, bogus lottery prizes, property rip-offs, dubious foreign currency seminars, get-rich conferences, bucket-shop share offers and high-yield investment proposals.

High-yield investment frauds have become a huge problem. The Serious Fraud Office says more than $110 million has been invested in this area, and most of it has been lost.

Last week in Auckland four fraudsters were sent to prison for a total of 15 years and 9 months. Their "too-good-to-be-true" scheme was typical of the type of scam New Zealanders are falling for in large numbers.

In the 1990s Investor International promoted high-yield investment schemes in the United States. Its principal promoter was Rudolf van Lin who was convicted of offences relating to these fraudulent schemes in March 1999.

After the bust-up of Investor International's American operation, Donald Allen and Paul Palmer - also known as Gene Palmer - decided to set up a similar operation in New Zealand.

The first part of the scheme was to hold public meetings at which the audience was encouraged to attend overseas conferences.

Details of the investment schemes, which offered a return of 435 per cent a year, were revealed at seminars in Fiji in November 1999, Bali in September 2000, Fiji in November of that year and Penang in February and May 2001.

The Serious Fraud Office says people attending these seminars paid $5500, including travel and accommodation. Other reports indicate the total cost was as high as $14,000 a person.

Several New Zealanders helped Allen and Palmer attract people to their seminars and run the investment scheme. These included Stuart Buckland and husband and wife Dianne and Murray Christie.

Allen and Palmer were the main speakers at the conferences but some prominent New Zealanders also spoke.

These outside speakers, who included recently elected Act Party leader Rodney Hide at the 1999 Fiji meeting, unwittingly gave their support to the scam.

Allen, who is now 58, normally spoke first. He had a motivational style that encouraged those listening to take charge of their lives and be ready to make quick and important decisions that would make them extremely wealthy.

One of the central themes of this and other similar scams was that wealthy people had access to lucrative investment opportunities from which ordinary investors were excluded by a Government/finance industry conspiracy.

But Allen and Palmer were going to change that, giving those at their seminars access to these fantastic returns.

Because the New Zealand Government wanted ordinary investors excluded from these high-return investments, it was important to hold the seminars overseas and keep the details completely secret.

Palmer, now 40, was presented as the financial guru and concentrated on the legal structure of the investment proposal.

He encouraged investors to participate in a structure that took advantage of Panama's tax-free status. This would allow them to achieve huge returns and avoid paying New Zealand tax.

The diagram is a simplified version of the Allen/Palmer structure.

New Zealand investors, who are at the bottom of the diagram, would invest through a Panama company and receive a legitimate return of 10 per cent a year.

The Panama company would reinvest the money in high return international investments paying 15 per cent a month compounded.

A $100,000 investment would go to the Panama company and on to the international investment, where it would be worth $535,000, based on 15 per cent a month compounded, at the end of the year.

When the $535,000 was sent back to the Panama company, $110,000 would be returned to the New Zealand investor through a conventional route and the investor would pay tax on the $10,000 interest.

The remaining $425,000 was supposed to come back to New Zealand through a number of tax-effective Panama entities.

The effect was that a $100,000 investment would be worth $535,000 at the end of the year and the investor would pay tax on only $10,000 of the $435,000 return.

The Panama tax-efficient structure was covered extensively at the overseas conferences but there was little discussion on the 15 per cent a month return.

Investors were quick to accept that these returns were available to the rich and that Allen and Palmer had found a way to get them for ordinary investors.

The Crown says the Panama structure was not tax effective and would not pass the scrutiny of a professional tax adviser or the Inland Revenue Department.

The seminars were extremely successful, and just over 150 people invested $10.1 million in the scam. The smallest amount was $3452 and the largest $420,590. The SFO says $8.5 million of the $10.1 million was lost.

More than $9.4 million was paid directly into Palmer's personal ANZ Bank account in New Zealand. None of it seemed to go to the Panama company or the mysterious international source paying 15 per cent a month.

Palmer used his ANZ account for personal cash withdrawals of $1.2 million, credit card payments of $200,000, personal expenses of $550,000, travel expenses of $540,000, the purchase of a motor home, a limousine and numerous Harley-Davidson motorcycles for $293,000, and a $200,000 deposit on a six-hectare Whenuapai property.

Allen and his family also lived on the Whenuapai estate, and treated Palmer as their son.

The Crown said Allen benefited from many of the payments made from Palmer's ANZ account.

At the end of 2001, Palmer was arrested when re-entering the United States for selling trusts that allowed individuals to avoid paying tax.

The arrest was as a result of co-operation between the SFO and the FBI and Palmer is now serving a nine-year jail sentence in Illinois.

The Auckland trial of Allen, Stuart Buckland and Murray and Dianne Christie started on February 16 and lasted nine weeks.

The Crown had difficulty finding witnesses because most of the victims believed their money would have been safe if the Government, through the SFO, had not intervened.

Most still believe that these tax-free, risk-free 15 per cent a month deals are available to the rich but governments don't want widespread participation because, if they did, no one would work or pay taxes.

An Auckland jury found all the defendants guilty.

Last week, Donald Allen was sentenced to six years jail and Stuart Buckland, 60, Murray Christie, 46, and Dianne Christie, 44, to three years and three months each.

The SFO said Buckland and the Christies got $860,000 of investors money.

The most disturbing aspect of the case is that most of the investors believe low-risk, tax-free, high returns investments are available to the rich but not are hidden from ordinary investors.

This is why dubious seminars and investment schemes attract considerable interest. Most people who hand over their money never see it again.

There are no easy get-rich schemes, and the Government is not conspiring to exclude anyone from high-yielding investments.

But there are plenty of fraudsters, with their well-worn investment scams, lurking in New Zealand. Be particularly aware of aggressive salespeople offering overseas investments with unrealistically high returns.

* bgaynor@xtra.co.nz